December 9, 2022

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Powell says “inflation is too high” and the Fed will take “necessary steps” to address it

Powell says "inflation is too high" and the Fed will take "necessary steps" to address it

US Federal Reserve Chairman Jerome Powell addresses an online-only press conference in a screenshot of the US Federal Reserve’s video broadcast from the Federal Reserve Building in Washington, US, January 26, 2022.

US Federal Reserve | via Reuters

Chairman of the Federal Reserve Jerome Powell On Monday, he vowed to crack down on inflation, which he said is jeopardizing the robust economic recovery.

“The labor market is very strong, inflation is very high,” the central bank chief said in prepared remarks for the National Association for Business Economics.

The letter comes in less than a week The Federal Reserve raises interest rates For the first time in more than three years in an effort to combat inflation that has reached its highest level in 40 years.

Reaffirming the position taken by the Federal Open Market Committee on Wednesday In his statement after the meeting,Powell said the rate hike will continue until inflation is brought under control. He said the increases could be higher if needed than the quarter-percentage point move approved at the meeting.

“We will take the necessary steps to ensure the return of price stability,” he said. “In particular, if we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will. And if we decide we need to tighten action beyond joint measures with a neutral stance and more Restricted, we will do that too.”

The base point is equal to 0.01%. FOMC officials have indicated that a 25 basis point increase is likely at each of their remaining six meetings this year. However, markets are pricing around a 50-50 chance that the next increase, at the May meeting, will be 50 basis points.

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Stores It fell to its lowest level in the session Following Powell’s comments while Treasury yields rose.

Inflation ‘widely underestimated’

Sudden tightening of policy comes with inflation As measured by the consumer price index Averaged 7.9% on a 12-month basis. A measure still favored by the Fed Prices increased by 5.2%well above the central bank’s 2% target.

As he did before, Powell attributed much of the pressure to pandemic-specific factors, particularly the increasing demand for goods over services that supply cannot meet. He acknowledged that Fed officials and many economists “widely underestimated” how long these pressures would last.

While these aggravating factors persist, the Federal Reserve and Congress have provided more than $10 trillion in fiscal and monetary stimulus since the start of the pandemic. Powell said he still believes inflation will drift into the Fed’s target, but that it is time to end the historically easy policies.

“It is still likely that the hoped-for supply-side recovery will come over time as the world eventually settles into a new normal, but the timing and scope of this easing is highly uncertain,” said Powell, who is now chairman of the board. “. Temporarily while awaiting Senate confirmation for a second term. “In the meantime, as we set policy, we will look to actual progress on these issues and not assuming significant supply-side easing in the near term.”

As Powell spoke of Russia’s invasion of Ukraine, saying it adds to the supply chain and inflation pressures. Under normal circumstances, the Fed would generally consider those kinds of events and not change policy. However, with the outcome unclear, he said policymakers should be wary of the situation.

“In normal times, when employment and inflation are close to our targets, monetary policy would consider a short wave of inflation associated with commodity price shocks,” he said. “However, the risk is growing that a prolonged period of high inflation could push the long-term outlook uncomfortably higher, underscoring the committee’s need to move quickly as I described.”

Powell had indicated last week that the FOMC was also ready to begin eliminating some of the roughly $9 trillion in assets on its balance sheet. He noted that the cold process will start as soon as May, but no decisive decision has been taken.